A bond with 20 detachable warrants has just been offered for sale at $1,000. The bond matures in 20 years and has an annual coupon of $48. Each warrant gives the owner the right to purchase two shares of stock in the company at $46 per share. Ordinary bonds (with no warrants) of similar quality are priced to yield 6 percent.

What is the value of one warrant? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

Value of one warrant $

Question

Corbin Terry

Business

17 April, 11:41

A bond with 20 detachable warrants has just been offered for sale at $1,000. The bond matures in 20 years and has an annual coupon of $48. Each warrant gives the owner the right to purchase two shares of stock in the company at $46 per share. Ordinary bonds (with no warrants) of similar quality are priced to yield 6 percent.

What is the value of one warrant? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

Value of one warrant $

+2

Answers (1)

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King Parsons · Answer 1

Value of one warrant = $ 6.88 (2 decimals).

Explanation:

Ordinary bond current value = pv (rate, nper, pmt, fv)

Ordinary bond current value = pv (6%,20,48,1000)

Ordinary bond current value = $ 862.36

Current Value of Bond with warrant = 1000

Warrant value = Current Value of Bond with a warrant - Ordinary bond current value

Warrant value = 1000 - 862.36

Warrant value = $ 137.64

No of Warrant with a bond = 20

Value of one warrant = Warrant value / No of Warrant with a bond

Value of one warrant = 137.64/20 = $6.882

Value of one warrant = $ 6.88 (2 decimals).